Circular dated February 29, 2024 regarding financing controls for financial leasing companies

Mr. Chairman of the Board of Directors
February 29, 2024
Bank

Greetings,

In light of the Central Bank's mandate to supervise and monitor the activities of financial leasing companies, and to ensure the stability of the financial system, the Board of Directors of the Central Bank, in its meeting held on February 20, 2024, has issued the following instructions that banks must comply with when dealing with these companies:

1. Financial leasing companies must maintain a minimum liquidity reserve of 5% of total deposits, and a minimum capital adequacy ratio of 10% of total assets. This applies to all financial leasing companies (including foreign-owned or mixed financial leasing companies) licensed to operate in the Kingdom, in accordance with the provisions of Article 5 of Decision No. 2/2006 issued by the Board of Directors of the Central Bank.

2. To ensure transparency and prevent over-leveraging, financial leasing companies must report all financing transactions to the Credit Bureau. This reporting must be done through the Credit Bureau's system within 24 hours from the date of the transaction.

3. Financial leasing companies must verify the creditworthiness of their clients before granting financing, including:
   a. Obtaining a credit report from the Credit Bureau for the client. b. Ensuring that the client does not have any outstanding loans with other financial institutions, unless the financing is secured by collateral approved by the Central Bank.

4. Financial leasing companies are prohibited from financing activities that are contrary to Sharia principles or involve prohibited sectors as defined by the Central Bank.

5. Financial leasing companies are prohibited from financing entities that have outstanding loans with other financial institutions, unless the financing is secured by collateral approved by the Central Bank.

6. Financial leasing companies must ensure that their financing activities are within the scope of their licensed business and do not exceed the limits set by the Central Bank.

7. Financial leasing companies must ensure that their financing activities are aligned with their licensed business scope and do not involve prohibited sectors. Any changes to the board of directors or major shareholders must be reported to the Central Bank within three days of the change.

These instructions are effective from the date of issuance. Financial leasing companies must comply with these instructions within 30 days from the date of issuance.

Please ensure compliance with the above.

Sincerely,
Hassan Abdullah